Dear Reader,
Here at Wealth Daily's parent company, Angel Publishing, we've got a myriad of ways to get our research and investment ideas out to retail investors like you. And one of those ways is our investor chat on Discord (which I highly suggest you join). But with a name like "Angel," there's often the misconception that we're a community built ONLY of angel investors. And while all of us could be angel investors and many of us are angel investors, that's not specifically what brought us all together. But occasionally, someone comes looking for angel investors for a project, and that sometimes prompts the question: What is angel investing?
So today I wanted to take a little time to break down angel investing so you've got a better understanding of this niche part of the private investment market...
What Is Angel Investing?
First off, let's get a definition out of the way. Now, you're not going to find this specific one in Webster's or the OED, but the basics on angel investing are pretty simple. You see, angel investing is the practice of helping to fund startups with little to no business history behind them. Think of Amazon.com when it was just a posterboard sign hung on a folding table in Jeff Bezos' garage. Or think of Tesla when it was just the idea that maybe electric vehicles would be popular one day... Neither business had any assets to speak of other than the founder and the idea. But in order to get from idea to execution, you need money. And when all you have is an idea, you need angel investors to give you that money. But that then begs the question…
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Who Are Angel Investors?
That's another question that isn't one with a specific defined answer that you'll find spelled out in plain English. And that's because literally anyone with some spare cash and a vision can be an angel investor. You see, angel investors help fund companies at the ONLY stage in the private funding process where you don't have to meet specific criteria to be an investor. At every other stage, the government requires that anyone investing in a private company be an accredited investor. That's someone with a net worth (excluding their house) of more than a million dollars (or someone who brings in a quarter-million dollars a year consistently). It's a high hurdle to clear and it keeps the vast majority of investors from participating in private investments (which are often the most lucrative).
But angel funding can and often does come from non-accredited investors. In fact, many angel investors are the friends and family members of founders. Jeff Bezos grew Amazon with angel funding from his family. Google got its angel funding from one of the founders' professors. Howard Schultz, the founder of Starbucks, got money from his brother. And the guy who took Jersey Mike's from the shore to a nationwide chain got startup capital from his high school football coach. So literally anyone can become an angel investor if they've got some extra money and believe in the project or founders.
How Do Angel Investors Get Paid?
But that leads us to the most important part of any discussion about investing. And that's the exit strategy and profit-taking. Because nobody's investing in startups to feel good (at least, that's rarely the only reason). We're investing for gains. And angel investors are too. But they've got to wait a little bit longer for theirs since these companies are very early-stage and also still privately held. Most angel investors won't see a profit they can cash out until their investment either gets bought by a bigger company or gets its shares listed on the public markets in an initial public offering (IPO). Sometimes, they'll have the opportunity to sell a small amount of their private shares into later private rounds with new private investors. But the bulk of their equity stake will be locked up until there's some kind of liquidity event like an acquisition or an IPO.
So if you're thinking about being an angel investor and you think it'll make you rich overnight, think again. Patience is more than a virtue in this world; it's a requirement.
Are Angel Investors Successful?
But that patience often pays off BIG time if you're able to show it. The people who helped Jeff Bezos fund Amazon gave no more than a few thousand dollars each. Yet they're all now BILLIONAIRES thanks to that one investment. So one could say that angel investors are very successful… When they win, it's like turning a pair of roller skates into a Ferrari! But the thing with angel investing is that you're betting on a company that's usually got literally nothing but an idea. So you're taking a very big risk. And statistically nine out of 10 small businesses or startups fail, taking all the investor funds they've raised with them. But that tenth investment, the one that doesn't fail, often makes up for the 100% losses on the others AND delivers the kind of gains you usually only read about other people making. And that's why people become angel investors...
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Can You Be an Angel Investor?
So the last question we've got to answer is whether you can (and want to) be an angel investor. And while I can't say whether you want to be or not, I most certainly can declare that you most certainly can be one if you please. And thanks to a relatively recent change in federal securities law, you don't even have to know the founder of the next Amazon to be an early investor in it. You see, in order to help keep the economy growing through tough times, Congress opened up a loophole that retail investors can use to get a share of private companies BEFORE they go through an IPO and list shares on the stock market. And it's opened up the floodgates of private profits that were once shut to 99% of the investing world.
It's such a huge opportunity, I recently took the time to put together a presentation to help explain this newly opened marketplace so that everyone can take advantage of the kind of angel investments that have created family fortunes for decades past. And I want to share it with you today, completely free of charge or commitment, so that you too can become an angel investor.
The Bottom Line
The bottom line here is that angel investing is a way for companies without much track record to get the funding they need to move forward and grow. It's also a way for investors with higher risk tolerance to make potentially outsized gains as their angel investments keep growing. But it's not as easy as investing in public stocks because private companies don't post their financials for the world to see. So it helps to have a strong background in finance and capital markets to make sure you understand the terms of the investment you're making. Otherwise, you could end up like those people who thought they were investing in Oculus, only to find out that they were donating money to the company and weren't entitled to a share of the multibillion-dollar profits when it was sold to Meta.
So I highly suggest you check out my presentation and get yourself more acquainted with this niche market. And if you'd like a guide on your way to becoming an angel investor yourself, I'd be honored to be your choice. Just keep coming back to Wealth Daily to stay on top of all the ways you can beat Wall Street and create your own family legacy.
To your wealth,
Jason Williams
@TheReal_JayDubs
Angel Research on Youtube
After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter; the founder of Future Giants, a nano cap investing service; and authors The Wealth Advisory income stock newsletter. He is also the managing editor of Wealth Daily. To learn more about Jason, click here.
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